Weekly Ratings, Targets, Forecast Changes – 15-11-24

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Weekly update on stockbroker recommendation, target price, and earnings forecast changes.

By Mark Woodruff

Guide:

The FNArena database tabulates the views of eight major Australian and international stockbrokers: Citi, Bell Potter, Macquarie, Morgan Stanley, Morgans, Ord Minnett, Shaw and Partners and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday November 11 to Friday November 15, 2024
Total Upgrades: 9
Total Downgrades: 12
Net Ratings Breakdown: Buy 58.90%; Hold 32.89%; Sell 8.21%

For the week ending Friday November 15, 2024, FNArena recorded nine upgrades and twelve downgrades for ASX-listed companies by brokers monitored daily.

Reversing the recent trend, rises in average earnings forecasts and average target prices convincingly outweighed falls, as can be seen in the tables below.

Paladin Energy featured atop the tables for negative change to earnings and target prices after management reduced FY25 production guidance to 3.0-3.6mlbs from 4.0-4.5mlbs and withdrew all other guidance.

Management cited ongoing issues with stockpile processing and greater ore grade variability during the ramp-up of Langer Heinrich, along with disruptions to water supply from the Namibia Water Corporation.

The stock price declined by around -29% post the market update.

The analysts at Morgan Stanley felt the negative share price reaction was overdone, especially as management highlighted the short-term nature of the setback, with nameplate capacity of 6mlbpa expected by the end of 2025.

Shaw and Partners felt the update should not have been a surprise as management had already flagged the issues at the company’s first quarter update.

Neither of these two brokers made large adjustments (Morgan Stanley no change) to existing targets, but Citi applied a 90% risk rating to its Langer Heinrich valuation to reflect ramp-up uncertainty, and this broker’s target was reduced to $11.50 from $14.60.

Bell Potter lowered its target to $9.70 from $14.40 and suggested management has a significant reputational rebuild ahead.

This broker also noted Paladin would be in a tough position to progress viable growth projects should the current Fission Uranium acquisition deal not complete.

To return the transaction to a premium for Fission shareholders, the Paladin share price will need to climb above $10, noted the analysts. Shares closed the week at $7.29.

The average broker earnings forecast for Liontown Resources rose significantly last week after management provided initial FY25 production and cost guidance as part of a revised mine plan for the Kathleen Valley lithium mine in Western Australia.

The analyst at Macquarie noted management’s forecast sustaining and growth costs were higher-than-expected due to increased underground mining and infrastructure costs as Kathleen Valley transitions to underground mining from open-pit.

Improving processing grades, explained the broker, the updated mine plan is for 2.8mt per annum production by the end of FY27, down from 3mt per annum.

Unfortunately, higher-than-expected capex pulls forward Citi’s balance sheet concerns. On the analyst’s spot estimates, additional liquidity will be needed by FY26.

This broker decided to reduce its 12-month target price to 75c from 85c and downgraded to Sell from Neutral on valuation, noting Liontown stock had outperformed peers by 10-20% in the quarter-to-date.

Silk Logistics received two ratings downgrades from separate broker last week.

Morgans increased its target to $2.14 from $2.00 to align with the offer price in the Scheme Implementation Agreement with DP World (Australia).

Silk’s Board unanimously recommended Silk shareholders vote in favour of the Scheme in the absence of a superior proposal and subject to an independent expert concluding the Scheme is in the best interests of Silk shareholders.

Major shareholders controlling around 46% of shares on issue have already confirmed their intention to vote in favour of the scheme, noted Morgans, which downgraded to Hold from Add after raising its target to $2.14 from $2.00.

As covered in https://fnarena.com/index.php/reporting_season/ ANZ Bank also received two ratings downgrades last week after FY24 results missed consensus forecasts.

Last week, analysts raised their targets materially for Life360, Aristocrat Leisure and Xero after releasing third quarter, FY24 and first half results, respectively,

Average earnings forecasts for Life360 and Aristrocrat rose by around 15% and 12%, respectively, but were preceded on the positive earnings change table by two agricultural stocks Nufarm and GrainCorp, as well as Orica.

On the flipside, Light & Wonder is listed second in the table below behind Paladin Energy on the negative change to earnings table after releasing third quarter results.

For explanations of these changes to earnings forecasts and targets relating to the recent mini reporting season please refer to the abovementioned link.

Total Buy ratings in the database comprise 58.90% of the total, versus 32.89% on Neutral/Hold, while Sell ratings account for the remaining 8.21%.

Upgrade

APA GROUP ((APA)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 2/2/1

APA Group is upgraded to Buy from Accumulate by Ord Minnett with target price retained at $8.60 due to more constructive view as a result of dissipating regulatory risks.

The broker notes the Australian Energy Regulator’s recent decision not to regulate APA’s South-West Queensland pipeline has lessened re-regulation concerns.

Despite the end of APA’s WallumbillaGladstone pipeline contract with Shell in 2035, Ord Minnett sees a decade of low-risk revenue.

Distribution yields are projected at over 8% from FY25 to FY30, supported by inflation-protected earnings.

The broker finds the prospective yield is very attractive for investors.

BRICKWORKS LIMITED ((BKW)) Upgrade to Buy from Hold by Bell Potter .B/H/S: 3/3/0

Bell Potter upgrades Brickworks to Buy from Hold. The analyst believes the stock’s pullback offers a bottom-of-the-cycle entry point with potential for a valuation “uplift” based on the broker’s in-house view of an interest rate pivot.

The first rate cut in Australia is expected in February 2025.

Assessing the earnings mix for Brickworks, the analyst highlights the valuation ascribed to its building materials business, excluding Washington H. Soul Pattinson & Co ((SOL)), is 7x EV/EBITDA versus a bottom-of-the-cycle 6.0x.

The analyst estimates a cash rate cut of -50bps equates to an EPS accretion between 3%-4%, as most of the company’s earnings are generated from investment dividends and lower-yielding property.

The broker posits an underappreciated aspect of the company’s valuation is “rent reversion” and property development.

Buy. Target price rises to $32 from $31.

LIFESTYLE COMMUNITIES LIMITED ((LIC)) Upgrade to Hold from Sell by Bell Potter .B/H/S: 2/2/0

Bell Potter upgrades Lifestyle Communities to Hold from Sell following the AGM trading update and the underperformance of the stock relative to the XPJ REIT index.

Management highlighted adverse media and challenging Victorian market conditions have resulted in only 25 net new home sales year-to-date to 31 December 2024. 1H25 guidance for settlements is 120-130 versus the broker’s forecast of 125. No FY25 guidance was offered.

The VCAT hearing decision remains a headwind, along with a decision on the replacement CEO and deferred management fees.

Bell Potter lowers EPS estimates by -5% and -11% for FY25/FY26 due to expected lower settlements and concerning below-trend sales rates.

Target price lifts to $8.90 from $8.20. Hold rated.

LIGHT & WONDER INC ((LNW)) Upgrade to Buy from Accumulate by Ord Minnett .B/H/S: 5/0/0

Ord Minnett upgrades Light & Wonder to Buy from Accumulate with target price raised to $187 from $155.

The broker notes the company’s September-quarter earnings were slightly below expectations due to weaker gaming division performance, but revenue from the Dragon Train game series has largely been replaced.

Ord Minnett anticipates 22% EPS growth in 2025, driven by strong operating leverage, continued growth in gaming installations, and double-digit expansion in iGaming.

Post-results, the broker lowers earnings forecast by -2% in 2024 but increases estimates for 2025/2026 by 9% and 8%, respectively.

NUFARM LIMITED ((NUF)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/1

Morgans upgrades Nufarm to Add from Hold, raising the target price to $4.53 from $4.23, as the analyst believes the company appears to be through the worst of a challenging period.

The broker describes FY24 results as “weak,” with net profit falling -103%, in line with management’s downgraded guidance.

The company was impacted by high inventory levels and destocking in the crop protection industry, with margins under pressure as higher-priced inventory was sold.

Management provided no guidance, but Morgans  believes the outlook for crop protection has improved. Nufarm is focusing on cost reduction and improved working capital, including annualised savings of -$50m.

Morgans lowers earnings forecasts by -3%, with higher depreciation/amortisation charges offset by lower net interest costs.

ORICA LIMITED ((ORI)) Upgrade to Add from Hold by Morgans and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 5/1/0

Morgans upgrades Orica to Add from Hold, raising the target price to $19.72 from $18.85 due to lower net debt levels and higher earnings forecasts for FY25/FY26.

Following acquisitions, Morgans notes Orica is now the world’s largest explosives company and the largest producer of sodium cyanide. The analyst believes the company will achieve solid earnings over the next few years due to strong demand and recontracting benefits.

The company’s FY24 earnings slightly exceeded expectations, with higher-margin businesses, digital solutions, and specialty mining chemicals boosting the EBIT margin to 10.5%. Morgans describes the earnings result as strong.

Cash flow conversion increased to 90%, and gearing came in lower than the target.

Ord Minnett upgrades Orica to Buy from Hold with a target price increase to $22 from $20, following strong FY24 earnings, FY24 results met consensus expectations, driven by its blasting solutions segment.

The company saw robust performance in the Asia-Pacific region and improved cash flow, leading to a better-than-forecast debt position, the analyst notes.

Management expects further EBIT growth in FY25. The broker forecasts 24% growth in EBIT for FY25 on FY24, supported by an enhanced product mix, higher prices, and contributions from recent acquisitions, including Terra Insights. 

The company’s low leverage may support potential capital returns, such as a buyback, with an updated capital policy expected in March, although the analyst does not expect a buyback at this stage.

Ord Minnett lifts its EPS forecast by 2% for FY26.

QBE INSURANCE GROUP LIMITED ((QBE)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 6/1/0

Macquarie upgrades QBE Insurance to Outperform from Neutral with a rise in the target price to $20.80 from $17.10.

The broker flags the rise in portfolio exits in anticipation of a pickup in the North American pricing cycle, as the insurer has “streamlined” its disclosures.

Quarterly filings with the insurance commissioner suggest gross written premium has contracted by -5.8% in 3Q24 year-to-date, with crop down -10%, while 2Q24 catastrophe losses were in line with expectations, including US hurricanes, European flooding, and Canadian events.

Macquarie lifts EPS estimates by 7.5% in FY24 and 10% in FY25 due to higher insurance margins as bond yields flatten and North America continues to improve.

QBE Insurance will report its 3Q24 trading update on Nov 27.

STOCKLAND ((SGP)) Upgrade to Accumulate from Hold by Ord Minnett .B/H/S: 3/1/0

To allow for the recent acquisition of 12 master-planned communities from Lendlease Group, explains Ord Minnett, management at Stockland has raised guidance for FY25 funds from operations (FFO) to 33-34cpu from 32-33cpu.

Guidance for full-year settlements has been upgraded to 6,200-6,700 as management forecasts FY25 settlements from master-planned communities will rise by approximately 950 lots.

The broker now forecasts settlements for FY25-FY27 of 6,600, 7,950, and 8,400 lots, respectively, and upgrades its rating for Stockland to Accumulate from Hold. The target is increased to $5.30 from $5.20.

Downgrade

ANZ GROUP HOLDINGS LIMITED ((ANZ)) Downgrade to Reduce from Hold by Morgans and Downgrade to Neutral from Buy by UBS .B/H/S: 0/2/4

After reviewing FY24 results, Morgans considers ANZ Bank’s share price overstretched relative to valuation and fundamentals and downgrades to Reduce from Hold.

A lack of additional capital management also disappointed the analyst.

While 2H earnings missed expectations, with cash EPS down by -10%, the broker acknowledges the Suncorp Bank acquisition may have skewed results.

The final dividend was held flat with 5% additional franking, notes Morgans. The FY24 and FY25 dividend forecast remains at $1.66 until the payout ratio aligns with the target range.

The target falls to $25.29 from $26.13.

ANZ Bank is downgraded to Neutral from Buy by UBS as the share price has reached the broker’s target price of $32.

The bank reported FY24 results meeting expectations, with diversification supporting the earnings profile. The 2H24 results suggest to the analyst a quicker-than-forecast integration of Suncorp Bank, which may yield stronger results from the acquisition.

UBS lifts EPS estimate by around 3% for FY25 and lowers FY26 EPS by -2%. Net interest margin assumptions are lowered by -2bps FY26 from continued competition in an expected lower interest rate environment.

LIONTOWN RESOURCES LIMITED ((LTR)) Downgrade to Sell from Neutral by Citi .B/H/S: 1/1/3

Following a trading update, Citi downgrades Liontown Resources.

Management outlined a higher margin of 2.8mt p.a. for FY28-FY30, projecting 530kt of spodumene concentrate but a lower lithium carbonate output of around -8kt to -19kt.

Costs are expected to trend higher in 2H2025 and decrease into FY27-FY30, with capex flagged as exceeding expectations, raising balance sheet concerns for the analyst.

Citi flags another $100m in financing from the LG Solutions convertible terms is available to be drawn down.

Based on the projected 2.8mt p.a., the target price falls to 75c from 85c. Due to the stock’s recent outperformance, the rating is downgraded to Sell from Neutral.

MADER GROUP LIMITED ((MAD)) Downgrade to Hold from Buy by Bell Potter .B/H/S: 0/1/0

Following a review of cyclical drivers for Mader Group and after recent share price strength, Bell Potter raises its target to $7.20 from $6.80 and downgrades to Hold from Buy.

The broker’s assumed weighted average cost of capital (WACC) was also lowered to 10% from 10.5%.

The analysts see limited upside risk to FY25 guidance in the current environment as North American mining activity remains challenged.

MATRIX COMPOSITES & ENGINEERING LIMITED ((MCE)) Downgrade to Speculative Hold from Speculative Buy by Bell Potter .B/H/S: 1/1/0

A lack of major Subsea contract awards prompts Bell Potter to lower its target for Matrix Composites & Engineering to 33c from 44c and downgrade to Speculative Hold from Speculative Buy.

The broker highlights a year-long drought of these contracts and is becoming cautious around near-term project delivery, facility utilisation, and earnings growth.

NIB HOLDINGS LIMITED ((NHF)) Downgrade to Underperform from Neutral by Macquarie .B/H/S: 3/2/1

Macquarie downgrades nib Holdings to Underperform from Neutral.

The health insurer announced FY25 guidance of $235m-$250m, compared to consensus at $262m and the broker’s forecast of $264m, as NZ is expected to generate a 1H25 loss of -$10m due to rising claims inflation.

Promotional activity remains at an all-time high for the first four months of FY25, the analyst states, and the history of re-pricing shows the rate is usually lower by -60bps in the lead-up to a federal election.

Macquarie lowers EPS forecasts by -18.2% and -12.5% for FY25/FY26 due to increased claims inflation. The target price falls to $5.45 from $6.30.

SIMS LIMITED ((SGM)) Downgrade to Neutral from Buy by Citi .B/H/S: 2/2/1

The AGM trading update by Sims confirms to Citi near-term improvement in the US market, but the A&NZ region remains tough reflecting lower Asian steel prices/margins given high China steel exports.

In line with rising market multiples, the broker raises its multiple for Sims and the target increases to $13.50 from $13.00. The rating is downgraded to Neutral from Buy following a 34% rise in share price in the last six months.

SILK LOGISTICS HOLDINGS LIMITED ((SLH)) Downgrade to Hold from Buy by Shaw and Partners and Downgrade to Hold from Add by Morgans .B/H/S: 0/2/0

The Silk Logistics share price is now trading broadly in line with Shaw and Partners’ unchanged $2.10 target price after management entered into a Scheme Implementation Deed with DP World Australia.

DP World Australia intends to acquire 100% of the issued capital of Silk Logistics for a cash price of $2.14 per share.

In the absence of a superior offer, the board recommends Silk Logistics shareholders vote in favour of the Scheme.

The broker’s rating is downgraded to Hold, High Risk from Buy, High Risk.

Morgans increases its target for Silk Logistics to $2.14 from $2.00 to align with the offer price in the Scheme Implementation Agreement with DP World (Australia) Limited and considers it a credible offer.

The board unanimously recommends shareholders in Silk Logistics vote in favour of the proposed scheme.

Major shareholders controlling around 46% of shares on issue have already confirmed their intention to vote in favour of the scheme, notes the broker.

The rating is downgraded to Hold from Add.

STRAKER LIMITED ((STG)) Downgrade to Hold from Speculative Buy by Ord Minnett .B/H/S: 0/1/0

Ord Minnett downgrades Straker to Hold from Speculative Buy, with a target price cut to $0.38 from $0.89, following management’s reduction in revenue guidance of -12% for FY25.

The analyst observes the decline is driven by the non-renewal of two low-margin European Union contracts.

Straker expects stable gross margins and positive adjusted EBITDA but Ord Minnett continues to see risk in its legacy Language Services revenue with the FY24 decline of -24% in the business revenue as likely to remain into FY25.

The company is pivoting to higher-margin AI products, but Ord Minnett awaits further demand evidence before reassessing the operating outlook.

WEB TRAVEL GROUP LIMITED ((WEB)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 3/3/1

In what appears to be a reaction to Web Travel’s 1H preliminary results back in mid-October, Morgan Stanley lowers its target to $3.70 from $7.00 and downgrades to Underweight from Equal-weight, preferring other travel exposures. Industry View: In-line. 

In the broker’s view, the October trading update was not just an earnings downgrade but also a downgrade to long-term earnings potential.

Further, channel checks conducted by the analysts indicate competition between wholesalers, in the form of take-rates, has
intensified, and major online travel agents (OTAs) and competitor Hotelbeds have a relative scale advantage.

XERO LIMITED ((XRO)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 4/2/0

Ord Minnett downgrades Xero to Hold from Accumulate, raising the target price to $180 from $160 following strong 1H FY25 results, which exceeded expectations due to strict cost control.

The downgrade is based on valuation grounds, the analyst states due to the 14% appreciation in the share price in November.

Ord Minnett views the company’s prospects as positive, estimating around 20% revenue growth out to FY27, which could allow Xero to meet the “rule of 40” for SaaS companies.

On Ord Minnett’s observation, market consensus is more conservative, expecting 17% growth by FY27, declining to 14% growth by the end of the decade.

Xero may also accelerate US subscriber growth and expand into Australia’s middle market where the total addressable market could be as large as NZ$2bn.

Post-results, earnings forecasts for FY25-FY27 have been increased by 4-6%, respectively.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup <img src="https://www.fnarena.com/charts/fnarena/3dbar.php?mydata=1&mylabels=BellPotter,Citi,Macquarie,MorganStanley,Morgans,OrdMinnett,ShawandPartners,UBS&b0=190,124,173,87,231,234,166,134&h0=117,139,166,111,177,137,22,156&s0=7,36,37,48,21,33,4,40″ style=”border:1px solid #000000;”>

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